African Equities: Two Markets To Watch In 2010
The Ghana All-Share Index was the worst-performing stock market in Sub-Saharan Africa in 2009, but I believe that it could reverse its fortunes and be among the top performers in 2010. Having experienced a dramatic 48.0% fall in the first half of 2009, the market has found support around 5,200, and now appears to be in the recovery mode. One particular cause for optimism is the Relative Strength Index (RSI). On a monthly chart, the indicator is just exiting oversold territory, suggesting that a medium-term rally could be on the cards. Certainly, the fundamentals are supportive of equity market gains, given Ghana’s forthcoming oil boom and the recent improvement in the inflation picture as well as the management of the fiscal finances. I recognise, however, that liquidity is especially limited in this market, so it is best suited to smaller investors and those with a ‘buy and hold’ strategy.
Nigeria - Lagos All-Share Index (top) & Monthly RSI (bottom)
The technical picture for Nigeria’s Lagos All-Share Index is similar to that for Ghana. While the market performed poorly in 2009 having seen 33.6% losses from start to finish, it appears to be forming a base for gains around the 20,000 level. Again, the monthly RSI is encouraging, given that it is currently in oversold territory. The fundamentals for Nigeria also give cause for optimism, with BMI’s growth forecast for 2010 standing at a healthy 6.4%. However, I am still concerned over financials, which comprise a large weighting of the index, and furthermore, the lack of lending plaguing the economy is likely to impact on all companies. For these reasons, I am watching key support at 20,000, with a break below taken to be a very bearish signal.